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Thu 8 Dec 2011 08:55 AM

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Debt-laden Air Berlin searches globe for investor

Abu Dhabi’s Etihad Airways has denied it is in deal talks with the German carrier

Debt-laden Air Berlin searches globe for investor
Air Berlin has failed to deliver a profit for several years

Air Berlin is in talks with more than one possible investor,
several people familiar with the negotiations said, as Germany's second-biggest
airline seeks to dig itself out of a debt hole created by rapid expansion over
the last few years.

German newspapers have said Air Berlin is seeking an
investor to take a minority stake in the carrier, and both Abu Dhabi-based
Etihad Airways and China's HNA Group - owner of Hainan Airlines - have been named
as candidates.

"There are talks with other companies too, Etihad is
only one of them," one of the sources said on Wednesday, adding Air Berlin
was also in talks with partners from the Oneworld alliance, which it is due to
join next year.

Two people said a deal was not imminent. One of them said it
was rather unlikely that a quick deal was possible in the currently tense
market environment.

Air Berlin declined to comment on the matter.

The carrier has had a rocky ride this year, with founder and
chief executive Joachim Hunold stepping down in August after failing to deliver
a profit for several years, and Air Berlin is now trying to shrink its way back
to profitability.

It has cut unprofitable routes, pushed back aircraft orders
and issued a bond with an 11.5 percent coupon to shore up its finances, while
its debt pile grew to €644m ($862m) at end-September from €489m at the end of
2010.

Yet the business environment does not look set to improve
anytime soon, with industry body IATA cutting its forecast for 2012 airline
industry profits by a quarter on Wednesday and warning the industry could
plunge to an $8.3bn loss if Europe's debt problems trigger another banking
crisis.

The company's shares have dropped to less than €2.50 from a
high of more than €20 in 2007, giving Air Berlin a market value of just over €200m
($268m).

The stock yo-yoed on Tuesday after Germany's Manager
Magazine cited sources as saying Air Berlin would announce this week that
Etihad was taking a stake in the carrier via a capital increase. A similar
report in Handelsblatt followed on Wednesday.

Etihad said the Manager Magazin report was
"incorrect". Air Berlin declined to comment, but confirmed there was
a regularly scheduled board meeting on Wednesday.

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One person said there were currently no plans for a capital
increase, though another person familiar with Air Berlin said a capital
increase seemed a more likely option at the moment than another bond issue.

Due to foreign ownership restrictions, any buyer from
outside the European Union would be limited to a stake of just over 30 percent,
as Turkey's ESAS Holding, owned by the Sabanci family, already has a stake of
about 16.5 percent.

Also, analysts had said it would not make sense for Etihad
to take a stake in Air Berlin just as the German carrier is poised to join the
Oneworld alliance of airlines next year

Oneworld includes British Airways and Iberia - owned by
International Consolidated Airlines Group- 
as well as Hong Kong-based Cathay Pacific, Finnair and Russia's S7
Airlines.

Of those, British Airways is closest to Air Berlin, being
its sponsor in the alliance and having struck a codeshare agreement this year
applying to more than 40 European destinations.

BA and Iberia drew up a shortlist of 12 targets to pursue
after their $9bn merger was completed late last year. IAG last month agreed to
buy Lufthansa's UK unit bmi and is also seen as a possible bidder for Air
Portugal (TAP) and a stake in Aer Lingus.

"IAG doesn't want to make any comment on rumours or
speculation regarding the future of Air Berlin," a spokesman for IAG said.

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